Instead of rubber-stamping up to €60m for London and Brussels-based accounting standard setters, MEPs are expected on Friday to vote for several “conditions” to be attached to the funding in a bid to end to a long-running fiasco at the heart of financial regulation. The conditions demand that International Financial Reporting Standards (IFRS) are overhauled so that company accounts reflect “economic facts rather than concepts”.

If passed by the Economic & Monetary Affairs Committee, the London-based IASB and Brussels’ European Financial Reporting Advisory Group (Efrag) will have to prove their rules comply with European laws and do not, as investors maintain, allow banks and other companies to hide the build-up of risks on their balance sheets.

Rather than paying out six years of funding at once, the MEPs want to “conduct annually an assessment of whether these criteria are fulfilled” and release the cash in tranches.

The accounting authorities, which depend on Brussels for around 90pc of their funding, are said to be “furious” by the intervention. Syed Kamall, the British MEP who has pushed for the amendments, told The Daily Telegraph: “The accounting bodies have told us we have no right to do this because they are independent. But they can not be independent from the law.”

The MEPs’ demands represent a major breakthrough for investors who have been fighting to restore the principle of “prudence” in international accounting rules.

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In 2010, Tim Bush, a director at the investor group Pirc, sent a letter to the Department for Business warning that IFRS was creating “mistakes [in bank accounts] of such severity that it is difficult to overstate”.

Frustrated with a sluggish response from UK authorities, investors from 10 leading groups – including Threadneedle Investments, the Co-Operative Asset Management, London Pension Fund Authority and Railpen –wrote to Michel Barnier last year warning that IFRS,which was introduced in 2005, was harming shareholders, and destabilising banks and the economy.

Mr Bush said: “It is positive that the EU Parliament is ensuring that accountability is attached to the enormous sums of public money being given to the IASB.”

The IASB, IFRS, the Financial Reporting Council and Efrag declined to comment. If the MEPs pass the amendments on Friday, the conditions for funding will be passed for approval to individual member states.